G spot

First of all, it finally happened. The CNBC (aka crapvision) just gave a side-by-side pictures of monkeyboy and similarly shaped monkeys. Finally they are on the track to admit the obvious. The next step will be to admit that this is not a correction, but a bear market.

So, monkeyboy will give his stimulus package in few minutes. I don’t know what they’ll come with and hopefully it’s useful, but I’ll give what I think must be done.

The government doesn’t have any money. It is running a large deficit and only it’s final power to inflate its debt out saves it from bankruptcy. But it has millions of followers. By some reason it has a lot of followers. Millions of people and thousands of corporations decided that they can run large deficits and then this debt will be magically inflated out. I think monkeys must not copy elephants.

The biggest and baddest problem is the fast ongoing destruction of the middle class. Many (if not most) people just don’t have enough skills to properly manage their finances and now they sit on the dip hole. There is nothing that can solve the problem, but at least we must do something, whatever is possible.

My package of immediate things to do is:

Mortgage lenders have no right to claim any property except the house itself, even if the contract allows that

After foreclosure, mortgage lenders may not evict former owners until the adequate rental is found. If the family is unable to find the rental home mortgage lender must ask the local authorities to provide the comparable rental and pay the expenses

Massive investigation of mortgage fraud must be done. Any lender under investigation may not foreclose even a single house

Redistribute taxes from those who own over $100k to those under $50k, but keep the overall tax rate the same

The common folks can’t service their debt,the banking industry produces debt rather then meaningful productive output which happens to be 25% of our current economy.
In 1989 Japan was the worlds financial leader, pull up a chart on the Nikme going back to say 1985 to the present compared to the DJ, you will get a good picture of the future U.S. equity markets.
Our economic problems go well beyond the current housing mess which krugman noted was our economy, sellling each other houses,until recently. The major political parties will continue to pass around kool aid but the American consumer doesn’t find it refeshing rather its leads to depression and BK.

>>Redistribute taxes from those who own over $100k to those under $50k, but keep the overall tax rate the same

Nice. Socialism always works as we can see. Let’s just choke off capital from those who know how to actually produce and save. From the “nice Nazi” comments to the Socialism — why don’t you just come right out of the closet and state your real political beliefs. Add to that the “monkey” comment support that would be considered outright racist, not to mention completely disrespectful, if applied to anyone else. The same venom used to be spewed against Bill Clinton by Republicans when he was in office. You have succumbed to the same hate baiters.

For the record, I consider to just about EVERY Republican & Democrat to be corrupt along with our current tax code. There is barely a sliver of difference between the two parties. If you are on one side (Rep/Dem) and hate the other, you have been suckered in to the false choices fed to the ignorant masses, while they use you to keep their power base intact by pitting one against the other with false choices.

The thing to remember about the feds’ actions is that they are not trying to avert a downturn but rather they are trying to manage it. That is avoid a downright collapse, make sure the banking sector continues to function (albeit in an impaired manner), and most importantly, make sure that the recovery isn’t just another bubble. The economy is done but the question is whether we are looking at a Japanese style economy for the next decade or 2 (or 3?) or rampant inflation. I think that the fed is hedging its bets. It knows it needs to lower rates but it is going to do it on its terms in a hope of keeping inflation under control.

The media makes a big deal out of Bernanke’s expertise on the 30’s depression as if he can save us all from disaster but what his knowledge really means is that he understands what is happening and can take actions that are appropriate. He is powerless to stop it though. The seeds of all this were sown long ago.

I believe that with Bernanke there is quite likely an adult in charge and that he has a long term view of the economy, society, and the country. He has worked hard at his reputation and I can’t imagine him whoring himself out like Greenspan. He may makes some missteps along the way but I think he is a serious person. Whether he is enough to counter the rest of the fools is another matter.

eh, probably theroxylandr is talking more about predatory lending where a mortgage broker or bank has been purposely targeting certain individuals and putting them in suicide loans at high interest rates. These are usually going to be people with lower credit scores and not much assets, and I can see roxy’s point that this kind of crap is unethical and should be investigated. In other words, if you’re a mortgage broker and you’re pretty sure that the guy you’re getting the loan for can’t make the payments or will wind up in foreclosure, but you don’t care because you just want the transaction fees, then you are defrauding the MBS investors and you aren’t protecting the interests of the bank or the borrower. Seems like an open and shut case to me. Some will argue that the borrower is ultimately responsible for his/her actions, and this is also true. But that doesn’t excuse the mortgage broker from any responsibility whatsoever.

Having said this, there are numerous kinds of fraud that have been associated with the housing bubble, some of which are much more destructive than predatory lending, imho. The two most common are appraisal fraud and “scratch and dent” first payment defaults, but I think the former is actual more insidious and widespread.

I would define appraisal fraud as essentially where the RE appraisers, who are supposedly independent and unbiased, are pressured to “hit the number” by either the mortgage broker, the owner, or both. Much of the time, the appraisers were aware that the inflated appraisals aren’t remotely realistic, but the basic attitude has been, “everybody’s doing it and if I don’t, I won’t get any work.” The problem with this, of course, is that the GSE and MBS investors were assured by the banks that all due diligence (including accurate and conservative appraisals) had been done on the loan pools and now they are finding out that the inflated house prices are not even close to reality. My guess is that the entire housing bubble would have been impossible were it not for the unbridled and widespread appraisal and mortgage broker fraud. I’m not suggesting the appraisers created the bubble, there were myriad other large dynamic forces at work that did most of the dirty work. I just think the bubble couldn’t have existed without the complicit appraisal fraud which rubber-stamped the inflated prices with the Good Housekeeping seal of approval.

There are several good sites that describe scratch and dent but for purposes of this discussion, these are essentially first payment defaults where it is pretty obvious that the “buyer” is either a straw-man buyer on a grossly inflated deal, or was a buyer who purposely entered into contract with no intention of ever making even one payment. Probably the easiest way to identify these deals is when a house sells for considerably more ($200,000 more in many cases) than the seller was even asking for! Sometimes this “profit” is split between the straw-man buyer and the seller and deals like these often involve several people, an RE agent, a broker, and an appraiser. Sometimes they are all from the same family or community and the straw-man trades his good credit score for a couple hundred thousand. Its truly a disgusting scam and I think a lot of First Fed’s (FED) and Downey’s (DSL) portfolios are made up of this toxic scam garbage.

It seems like the Realtor and appraisal industries will probably be completely redefined and revamped as a result of all of this, either by the market’s cleansing process itself, or by government intervention.

As far as I’m concerned, as long as the conditions of the mortgage were completely and accurately described in the documents presented to the borrower, including a full layout of the amortization — amount being borrowed, interest rate, interest rate reset terms and schedule (if applicable), payments due, etc etc — and when the contract was signed the borrower attested that he had read and fully understood those conditions, as well as agreeing to them of course, then there is no “mortgage fraud”.

I agree it will be interesting to see what comes from the court cases — i.e. how “mortgage fraud” is defined, and how legal culpability and restitution (settlement) is decided. Although I am no believer that courts are fonts of wisdom and justice in most things.

Appraisal fraud and ‘scratch and dent’ schemes are another matter completely.

@Darth Toll — Thanks for your generous and very interesting comment.

@Theroxylandr — There may well be a largely politicized definition of “mortgage fraud” that comes out of this. For two reasons: 1) the widespread and serious social (and fiscal) impact of the problem, and 2) the fact that minorities (non-Whites) are disproportionately affected.

I have thought about this issue of “mortgage fraud” a bit more, and perhaps ought to add:

When I see the term mortgage fraud, I think (immediately and mostly) of a wronged borrower — someone who is going to lose his home due to a legally culpable misrepresentation of the contract (amortization terms, for example). Here I personally (the courts may decide differently) do not include someone who was too stupid or irresponsible (and maybe a lender, in exercising due oversight, should not have entered into a mortgage agreement with this person) to read and fully understand the contract or appreciate his (repayment) responsibility under its terms.

I know there are many other issues here, both on the side of the borrower and the lender, and perhaps both in collusion. Not to mention the whole securitization process.

“Warren Buffett is paying only 17% (or was it 18%?) taxes on his income – he said that himself. Many low-middle class folks are paying 30%+.”

My guess is that warren is paying more than the 17-18% he is claiming. Warren Buffet has miscalculated his gross taxes paid, because he has neglected to include all of the taxes he is really paying.

Consider that the corporate tax rate is 35%. For Buffet to transfer cash from Berkshire Hathaway to him, first his corporation pays 35% in Federal taxes, Plus any additional State Corporate taxes owed. What is left over, Warren pays and additional capital gains tax of 15%. Buffet is probably losing money by going using capital gains instead of paying himself a salary. When a corporate pays using a salary there is no corporate income tax, even if he is in the highest personal tax rate (35%) its still less than the 35% Corporate tax Plus the additional 15% on the ~60% (-35% Fed Corp Tax – 5% in State Corp Tax) of cash.

Now consider stock dividends and other capital gain investments. The corporation that is awarding you a dividend, is also paying that 35% Corp. Income tax. Right off the bat before you get a penny, you net return is reduced by 35 cents on the dollar. While you may be fooled in to believe that your only paying 15% for capital gains, really your paying at a much, much higher tax rate. If there was no corp income tax, or if capital gains could be paid as a tax deduction, you would be earning at least 35% more in capital gains.

Personally I pay more than enough in taxes, I pay ~28% in Federal taxes, 15.4% in Social Security + medicare on my first ~$100K ($102K for 08), 6% is state sales taxes for every in state invoice, %6 in state income taxes, and another 2% in misc. taxes (ie state unemployment tax, FUTA, etc). I also pay an additional 6% sales tax on virtually anything I buy. I don’t go the capital gains route, because you end up paying more in total taxes that by simply paying personal taxes.

Those making less than $72K (Married) only pay 15% + 15.4% for a total of 30.4%. Those making over 72K and less than 137K pay 25% + ~15.4% for a total of ~40.4%. (For 2008, Anyone earning less than $102K pays the full $40.4, those making more exceed the SS cap and just pay 2.9% on the remainder.)

I know someone will probably suggest that the personal FICA taxes are only 7.6%, because the employeer pays the other half, but in reality, companies factor in their share of FICA taxes. No employer actually eats half of the FICA tax. It comes of of a persons gross salary. The same can be said on benefits (health insurance). If they didn’t have to pay those costs, the employees wages would have been higher.

theroxylandr wrote:
“And again, about increasing taxes for myself. You know, I earn 4x-5x more than average American, I can care about myself even if I’ll have to pay a little bit more. Just don’t make it too much.”

Well you can always contribute more than the mininum in taxes. there is No law that prevents you from over paying your taxes.

Considering that you probably make $130K to $160K, you really need to save as much money as you can. Sometime between 2012 and 2014, SS+ Medicare outlays exceed revenues. I expect between now and then two things are going to happen:

1. Much Much higher taxes. Current SS contributes a significant share of money into the general fund. Ever year going forward, the outlays will increase and tax revenues will decline (as boomers retire). This means less money being available for gov’t spending.

2. Sooner or later the gov’t will start raising the minimum retirement age. For those born after 1960, the minimum age is 67. Its almost certain that in the future, congress will start raising the minium age. First it will jump to 70, then 72, all the way into the upper eighties since they will not permit non-boomers from ever collecting SS or Medicare benefits.

So in addition to paying into SS, you will need to pay for your own retirment fund.

I firmly believe that most people grossly under estimate the amount of money they will need to save for retirement. Consider that Healthcare costs are approximate $600 month for singles and about $1100 per month for couples over 60 years of age. That figure does not include the full cost of prescription drugs, I would add in at least another $100 per month for a total of $1200 per month for a married couple. Thats in todays dollars. Assuming inflation averages about 4% for the next twenty years (assuming you want to retire in 2028 or later). the cost of healthcare will rise to about $2500 a month, that would be about $30K in just healthcare costs. Then lets add in some basic costs, such as food, utilities, fuel, rent or property taxes, etc The combined total of these will probably average between $25K and $50K depending on where you live and how big your home is, in about 20 years. So expect your yearly basic costs to range from $55K to $80K. Assuming you live for 20 years post retirment, you need a minium of $1.1 Million.

My guess is that if your earning between $128K and $160K, with your current taxes and your current living expenses that you will fall short of your mininum retire savings. You need to save approximate $50K to $70K post taxes (in take home pay), or about $70K to $80K deferred tax fund (401K, IRA, SEP, etc). If your household income is less than $150K, and you are born after 1960, is very likely that your standard of living will decline significantly when you retire.